Sheng Siong Group (SSG SP) - UOB Kay Hian 2017-10-30: 3Q17 Results In Line, Boosted By One-off Tax Refund

Sheng Siong Group (SSG SP) - UOB Kay Hian 2017-10-30: 3Q17 Results In Line, Boosted By One-off Tax Refund SHENG SIONG GROUP LTD OV8.SI

Sheng Siong Group (SSG SP) - 3Q17 Results In Line, Boosted By One-off Tax Refund

  • Sheng Siong Group (SSG)'s 3Q17 results were in line with our expectations. Core net profit grew 11.5% yoy, driven by contributions from new stores and a slight uptick in same-store sales (SSS) growth. 
  • The uptick in SSS growth reflects better consumer sentiment in Singapore although competition remains fierce. Sheng Siong’s earnings growth next year will have to come from SSS growth and securing new supermarket tenders.
  • Maintain HOLD and PE-based target price of S$1.06.



RESULTS


3Q17 results. 

  • Sheng Siong Group’s (SSG) 3Q17 results were in line with our estimates.
  • Revenue came in 4.2% higher yoy, attributed mainly to new store openings and an improvement in same-store sales (SSS) growth of 1.7% in 3Q17 (2Q17: +0.9%). 
  • In Nov 17, SSG’s mega supermarket at Woodlands 6A (41,500sqf) will close but the group will open three smaller supermarkets in Woodlands St 12, Anchorvale Crescent and Edgedale Plains. 
  • Barring new supermarket tender wins, SSG should start 2018 with about 411,000sf of retail space, down from the 431,000sf as at end-3Q17. This should offset the closure of the Verge and Woodlands 6A supermarkets.

Net profit grew substantially due to one-off tax refund. 

  • Gross margin was stable at 25.8% for 3Q17 vs 25.9% for 3Q16. Fresh produce sales as a percentage of total sales stands at about 43%. NTUC Fairprice has been slowly trying to gain market share in this segment. 
  • Net profit came in at S$19.6m for 3Q17 (3Q16: S$15.7m), driven by a one-off tax refund of S$2.2m. Core net profit grew 11.5% yoy due to higher sales and lower operating expenses.


STOCK IMPACT


10 new HDB supermarket outlets up for tender currently; end of irrational bidding.

  • On the supply side, our online channel checks at Place2Lease.com indicate a healthy supply of 10-12 supermarkets coming up for open tender over the next six months. The period of irrational supermarket site bidding appears to be over as SSG’s last few winning bids this year have averaged about S$12psf as opposed to what some smaller supermarket players bid for supermarket sites for as high as S$21psf. 
  • SSG’s growth in 2018 will mainly be driven by it securing new supermarket sites in areas where it does not have a strong presence.

No signs of a price war yet. 

  • The supermarket segment in Singapore appears to be at a standstill with the Big 3 brick-and-mortar supermarket players engaging in less promotional activities while e-commerce players have yet to engage in aggressive market-share grabbing strategies.


EARNINGS REVISION/RISK

  • We raise our net profit estimates for 2017-19 by 2.7-3.5% as we adjust our supermarket numbers to include Woodlands St 12, Anchorvale Crescent and Edgedale Plains opening in Dec 17. We now forecast SSG to add 20,000sf in new retail space in 2018 (previously 10,000sf). We also increase our other income assumption from S$6m to S$8m for 2017.
  • The risk of a price war between Amazon and RedMart remains, which will cause other brick-and-mortar supermarkets to lower prices.


VALUATION/RECOMMENDATION

  • With no near-term catalysts and uninspiring yield, maintain HOLD and PE-based target price of S$1.06, pegged to peers’ 2018F average PE of 22.5x (previously 23.2x).


SHARE PRICE CATALYST

  • A pick-up in SSS growth.
  • Higher-than-expected store openings.
  • China expansion surprising on the upside.




Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-10-30
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.060 Same 1.060



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